Glossary term
What is Overhead?
Short answer
Overhead is the ongoing cost of running a business that is not tied to one job, such as insurance, office costs, phone plans, software and vehicle payments.
Overhead, explained for tree service owners
Overhead is the money you spend each month whether or not a crew works that day. For a tree service, it can include truck and equipment payments, insurance, software, phone and texting plans, the office, accounting and marketing. Add up your monthly overhead, then divide it by the billable crew-hours you expect, and that gives an overhead cost per hour. Including it in your prices keeps the business from losing money in a busy-looking month. Many owners forget overhead when they quote a job, so the work looks profitable while the year is not. Review your list every quarter and cut costs that do not bring in work.
Related terms
- Break-even price
Break-even price is the lowest price for a job that covers all of its costs with no profit left over, found by adding direct costs and a…
- Day rate
Day rate is the amount a crew or piece of equipment costs for one full working day, used to price jobs and to decide whether to rent or…
- Gross margin
Gross margin is the share of revenue left after paying direct job costs, such as crew labor, equipment, fuel and disposal, but before…
- Insurance premium
An insurance premium is the price you pay, monthly or yearly, to keep an insurance policy active.
- Markup
Markup is the amount added to a job's direct cost to set its selling price, usually shown as a percentage of cost, such as 40 percent…
- Net margin
Net margin is the share of total revenue kept as profit after every cost of running the business, including overhead, has been paid.
- Pole saw
A pole saw is a saw on a long pole that cuts high limbs from the ground, so the worker does not need to climb.
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